Anti-assignment clause in oil and gas lease enforced

In a case involving the assignment of oil and gas leases from one company to another, an Ohio appellate court enforced an anti-assignment provision in the original lease. Harding v. Viking Internatl. Resources Co., Inc., 4th Dist. Washington No. 13CA13, 2013-Ohio-5236.

The facts

The Hardings owned property in Washington County that was subject to three oil and gas leases signed by the prior property owners, their parents. All of the leases contained the following anti-assignment clause:

The rights of the Lessor may be assigned in whole or in part and shall be binding upon their heirs, executors and assigns. The rights and responsibilities of the Lessee may not be assigned without the mutual agreement of the parties in writing.

The original lessee, Carlton Oil Corporation, assigned the leases to Viking in 2011. Though the assignment was recorded, the Hardings were not parties nor did they provide written consent to the assignment. However, after the assignment, the Hardings completed and returned a W-9 form that Viking mailed to them and they accepted and cashed royalty checks from Viking for eight months before they objected to the assignment and filed suit against Viking to have the court declare the leases void and forfeited because of the violation of the assignment provision.

In its response, Viking asserted several affirmative defenses, including waiver, estoppel and ratification. Viking also filed a counterclaim asking the court to quiet title in its favor and declare the leases to be valid, in full force and effect, and that Viking owns the lessee’s interest in the leases. The trial court, however, denied Viking’s motion for summary judgment.

Ohio law

Quoting the U.S. District Court for the Northern District of Ohio’s discussion of assignments under Ohio law, the court of appeals said:

It is long-standing tradition in the common law that all contract rights may be assigned except under three conditions. First, if there is clear contractual language prohibiting assignment, an assignment will not be enforced. Second, an assignment must not materially change the duty of the obligor, materially increase the insurer’s burden or risk under the contract, materially impair the insurer’s chance of securing a return on performance, or materially reduce the contract’s value. Third, the assignment will not be valid if it is forbidden by statute or by public policy.

The issue this court had to decide was whether the trial court erred in refusing to grant Viking’s motion for summary judgment.

The trial court determined that the anti-assignment clause in the oil and gas leases clearly prohibited assignments without Appellees’ written consent and that the uncontroverted evidence established that the leases were assigned without the written consent of the Hardings. In reaching its decision, the trial court did not address the equitable arguments made by Viking regarding ratification, estoppel and waiver.

The fact is, the dispute here involves a written contract which clearly specified the rights and duties of the parties with respect to the issue of assignment. As set forth above, Ohio enforces anti-assignment clauses where there is clear contractual language prohibiting an assignment.

Harding, 2013-Ohio-5236, ¶ 20 (internal citations omitted).

The court concluded that “the clear and unambiguous anti-assignment clauses contained in the original oil and gas leases should be enforced” and it affirmed the trial court’s decision. Id.

So, ultimately, the leases survived challenge, but the assignment was void, and the original lessee, Carlton Oil Corporation, was restored as the owner of the leases.

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